UK Chartered Accountants Welcome BEPS Progress
The Chartered Institute of Taxation’s Tax Policy Director has said the “first wave of reports [from the Organization for Economic Cooperation and Development on base erosion and profit shifting] is a significant step forward in the process of modernizing the international tax system, but the test will be getting international agreement for, and implementation of a set of rule changes, where there are a range of different perspectives and interests.”
Commenting on the OECD’s new reports, Tax Director Patrick Stevens said: “A key area addressed by these reports is the taxation of the digital economy. We are pleased that the OECD has endorsed our view that the digital economy cannot be ring-fenced from the wider economy. While it can be tempting to see internet firms as a special case given the ease with which they can serve customers in a country without having personnel there, the reality is that it is difficult to draw lines which separate out digital commerce from other economic activity.”
“Technological advance brings challenges for the international tax system, which may require rule changes but these should be changes for all companies not just the most obviously internet-based. Value-added tax (VAT) is an important component in taxing digital products and forthcoming changes to EU place-of-supply rules will be significant in this regard.”
Stevens continued: “We welcome the template for CBC reporting by multinational companies. This represents a significant improvement on the earlier draft, which went well beyond the requirements of the original G20 direction and would have been unduly burdensome for business, requiring some groups to produce thousands of pages of documentation.”
“The challenge facing the OECD has been to produce something which will provide the information tax authorities need for risk assessment, particularly around transfer pricing, without burying business in extra paperwork. On first impression, the template…seems to broadly achieve this. Obliging companies to disclose information on a CbC basis should aid tax authorities in their efforts to determine where a multinational’s income is generated, and thus where they should be taxed.”
“Transfer pricing is at the heart of the rules for taxing multinational companies. Transfer pricing based on arm’s length prices has its difficulties, especially when it comes to measuring what is the correct value which should be attached to intangible assets such as brands. However, the underlying principle that profit should be taxed in the country where it is generated is a sound one, and we welcome the OECD’s recognition, running through these papers, that this principle should continue to endure, strengthened by tax authorities’ improved access to information.
Stevens concluded: “There are no quick answers to how governments and tax authorities should approach the taxation of multinational corporations. Reaching a consensus on a coherent set of international tax principles that will eliminate non-taxation of profits and which can be implemented without an excessive increase in the compliance burden will be a painstaking process. It will not be easy. Nevertheless, I see a sense of common purpose which gives us an opportunity to modernize the international corporate tax system, rebuilding public confidence in it, while giving nations, taxpayers, businesses, and investors the certainty they need to flourish and grow. It is important that we take it.”
